Auto industry observers say Ford Motor Co. and Volkswagen would be an ideal marriage as the two carmakers engage in serious discussions about a potential partnership with unlimited potential.

“Something big is brewing,” said John McElroy, Autoline.tv host and longtime industry analyst.

“Look, if it isn’t, (Ford CEO) Jim Hackett can't survive. He has got to drop a bombshell on the industry.”

Analysts note that the car companies recently initiated talks about small partnerships, but each may be motivated to think big because of their limited product lines and limited regional scope.

VW is strong in Asia, South America and Europe, and lacks vehicles in the high-profit full-size pickup category.

Ford dominates the U.S. with its lucrative F-Series pickups and SUVs.

“Ford is already flirting with joint ventures with VW,” said Jon Gabrielsen, an independent market economist who advises automakers and suppliers. “So, the immediate question before Ford now is, does one do a difficult but orderly marriage now or wait to be forced to do a disorderly fire sale under duress later? I see millimeter steps at a time when they should be taking a massive leap."

The most logical alliance partner for Ford would be Volkswagen, he said. Ford is strong in the U.S. where VW is weak, and Volkswagen is strong in markets where Ford is weak, particularly Asia.

"In 2017, VW was No. 1 in China while Ford was only No. 10 in an overcrowded market with over 70 players that is ripe for consolidation in which only the top few will survive," Gabrielsen said.

Ford and VW announced in June that the two companies had signed a Memorandum of Understanding to explore several joint projects, including (but not limited to) joint development of a range of commercial vehicles to better serve global markets. Both companies said they want to strengthen global competitiveness.

While the MOU is designed to allow for confidential exploration of a potential partnership, any strategic alliance explicitly "would not involve equity arrangements, including cross ownership stakes," news releases said at the time.

Decision pending

A Volkswagen spokesman declined to comment to the Free Press about "speculation." But a top company official's recent interview in Germany offers insight.

“We are currently exploring the possibilities of a collaboration. I am very confident that we will have something more concrete to say about this in the coming months,” Thomas Sedran, the new chairman of the board of management of Volkswagen Commercial Vehicles, told a Hanover, Germany, newspaper on Aug. 31. “However, nothing definite has been decided yet. Only when this is the case can we think about how we might be able to develop the next generations of models together.”

VW is talking to Ford “about various projects” with a “clear focus on light commercial vehicles,” he said. “Although Volkswagen is the largest car manufacturer in the world, we still don’t have the scale in certain areas to achieve optimal cost positions.”

Asked whether VW Commercial Vehicles and Ford would “carry out production together,” Sedran responded, “All this is part of the talks. I must ask for some patience here.”

Together, the iconic German and American companies could dominate the industry.

Ford makes nearly 40 percent of all full-size pickups sold in the United States. And VW sells nearly 15 percent of the vehicles purchased in China, the largest auto market in the world.

Jennifer Flake, executive director of communications at Ford, told the Free Press this week, “Ford is committed to leveraging adaptive business models, which includes working with partners to improve our fitness and the value we create for all stakeholders. This strategic alliance with VW is another example. We currently have an MOU with Volkswagen AG, covering conversations about potential collaborations across a number of areas. For instance, we are exploring how and whether to collaborate on a range of commercial vehicles for customers.”

She added, “We continue exploring a strategic alliance and will provide additional details as talks progress toward the end of the year. We believe the work streams — including commercial vehicles — have significant potential, but are not talking about values yet."

Ford and VW could save hundreds of millions through collaboration, analysts said.

“I think the commercial truck operations were a point of beginning for their discussions and, as they got more and more into it, they probably see a lot more synergies,” said McElroy, whose father retired as a Ford executive. “No one is sure of the form it’s going to take but, look, we need a lot of consolidation in the industry. There are too many car companies with too many brands making too many models.”

Now is the time for automakers like Ford and VW to grow profit together, he and others said.

“You can share vehicle platforms and powertrains,” McElroy said. “I don’t think people buying cars even know what’s under the hood. It doesn’t matter. I mean, Mustang GT? Those people do. And Audi RS? They do, too. But 90 percent of the car-buying public doesn’t know or care. Why not share all that stuff?”

Ivan Drury, senior manager of industry analysis for Edmunds, said VW and Ford have virtually no product overlap and collaboration makes “more and more sense” when examining the data.

“They’re just not making the same products," he said. "And we’ve seen so many mergers with automakers.”

Reasons for caution

Skeptics point to the Daimler-Chrysler merger that dissolved unhappily.

Ford has had its own failed experiences, having acquired and disposed of Volvo and Jaguar, and selling its controlling stake in Mazda.

The idea of a VW-Ford collaboration would likely have difficulties, said Jeoff Burris, founder of Plymouth-based Advanced Purchasing Dynamics, a supply chain consultant to auto suppliers primarily in North America.

“Where it falls apart is culturally,” he said. “Stoic Germans with freewheeling Americans.”

But looking in 2018 at past partnerships among automakers and large suppliers is outdated thinking, analysts said. All bets are off in 2018 as auto companies battle each other as well as tech companies for market share and edges in technology. It’s more and more costly to be an automaker now, and scale is essential to survival. Transportation is evolving faster than ever; only the strong and agile will survive, Gabrielsen said.

The Ford-VW numbers are compelling, analysts said again and again.

Gabrielsen noted that in 2017:

Ford had 13.9 percent of the market share versus 4.5 percent for VW in North America.

VW had 10.6 percent of the market share versus 8.9 percent for Ford in South America

VW had 10 percent of the market share versus 3.4 percent for Ford in Asia Pacific.

VW had 17 percent of the market share versus 7.5 percent for Ford in Europe.

Ford might consider pairing up with VW in China, based on a previous arrangement between the two in Latin America, said Burris, who worked for Ford from 1984 to 1997 and most recently oversaw global responsibilities for purchasing brakes, steering and suspension.

VW's Sedran said in August that the two have a good history that could bode well for future arrangements.

“Fortunately, the partners are not complete strangers,” he said. “(Volkswagen) and Ford have worked closely together before, for example in AutoLatina, a strategic alliance for South America. The interesting thing is that when this joint venture came to an end in 1995, there was no conflict or bad opinion of one another. Today, we have key figures on both sides who were involved back then. The cultures of the companies would be a good match.”

Meanwhile, Ford announced this month that it would begin workforce reductions globally in coming months while implementing CEO Hackett’s vision to make Ford more “fit” and competitive. Thousands of white-collar jobs are expected to be eliminated as the company searches for better efficiencies.

Industry experts say job tightening would likely happen in places where VW is already strong and Ford is already weak, so a partnership wouldn't actually impact the planned jobs reduction.

“We are the market leader in Europe but less well represented than we have come to expect from Volkswagen in many other regions,” Sedran said. “I recently spoke about the scarcity of resources — this has also repeatedly slowed down the development of new markets. We have more scope for internationalization. … Ford would also open up new opportunities for us internationally.”

VW has repeatedly tried to become a major player in the U.S. and failed, Burris said. He wondered about the Ford family turning over the keys to VW one day.

'Brilliant move'

“I don’t think it can come from Ford buying Volkswagen or a co-merger of equals,” said Burris, who couldn’t stop raving about his recently purchased 2018 Ford F-150 pickup. “If Volkswagen could pull it off, it would be a brilliant move.”

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Ford F-150 trucks come off the assembly line at the Ford Rouge Plant in Dearborn on Thursday, September 27, 2018.(Photo: Ryan Garza, Detroit Free Press)

On paper, from every angle, the allure of a Ford-VW partnership globally would be jaw-dropping, analysts said.

But nothing can happen without the support of the Ford family, which founded the iconic company 115 years ago and retains controlling interest.

Investment analysts have been critical of the leadership, in part saying Hackett hasn't been clear about the path forward. Moody's Investors Service in August downgraded Ford's investment rating to one notch above junk, and stock is dipping to post-recession lows in recent weeks, making analysts wonder whether someone might decide to accumulate shares during this time of great anticipation.

Nonetheless, VW achieved its goal two years ago of becoming the world's largest automaker. Ford is fifth.

People throughout the industry are watching carefully, including Gabrielsen.

“If I were VW, I’d acquire Ford as stock continues declining. Things are bad for Ford in three of four regions globally and in cars in North America. VW has three-and-a-half times the market share of Ford in China, more than twice as much market share in the EU and a quarter more share in South America.”

Jon Gabrielsen, an independent market economist who advises US-based automakers and auto suppliers with global operations, sees merit in a merger between Ford and Volkswagen. Photo taken on March 2016.(Photo: Jon Gabrielsen)

Gabrielsen said he can't understand the lack of urgency by the Dearborn-based automaker.

“Ford can screw around with management layer reductions in North America and partnership in the other three regions instead of being acquired, in a desperate attempt to remain independent, but concurrently, the next auto downturn is coming," said Gabrielsen, an Ann Arbor native who is based in San Jose del Cabo, Mexico. He travels frequently to Detroit, Chicago and Atlanta to meet with clients, primarily U.S.-based global companies.

"It is just a question of how soon. But, at the pace they are moving, the downturn will hit before they are done restructuring," he said. "A VW-Ford combination would be the undisputed largest automaker in the world, leaving the (now) near-tie with Toyota in the dust."